SMC eyes buyout of gov’t shares

MANILA, Philippines—San Miguel Corp. plans to complete a landmark P80-billion offering of preferred stocks by September, from which some proceeds will be used to redeem non-voting preferred shares held by the government.

During its stockholders’ meeting Thursday, SMC shareholders approved a plan to boost the company’s authorized capital to P30 billion from P22.5 billion, supporting further expansion and diversification plans.

SMC also announced to stockholders its plan to redeem the old series of preferred shares issued three years ago.

SMC’s recapitalization will be achieved through the following: an increase in common shares by 400 million to 3.79 billion; and an issuance of 1.1 billion new preferred shares with a par value of P5 apiece.

SMC president Ramon Ang told reporters after the company’s stockholders’ meeting that the conglomerate had “many options” on how to use the proceeds from the issuance of preferred shares.

Asked whether this would include redeeming the government’s preferred shares in SMC, Ang said: “Yes.”

Ang said the issuance would likely happen in September and that SMC would try to complete the P80-billion preferred shares offering in a single tranche.

The first series of preferred stocks, which targeted shareholders who would like a fixed return instead of sharing in the risks from SMC’s diversification, was issued at P75 a share in 2009. There are about 970.506 million of these first-series preferred shares with a total market capitalization of P72.5 billion, based on Thursday’s closing price of P75.50 a share.

The government holds 753.8 million preferred shares in SMC, previously equivalent to 24 percent of common shares but were converted into preferred shares in 2009, which SMC has the option to redeem this year. Following an affirmation from the Supreme Court that these assets belong to coconut farmers, the government is now technically free to sell its SMC preferred shares, analysts said.

At the same time, SMC will be able to lower its debt servicing cost by redeeming outstanding preferred stocks and avoid incurring higher rate under a “step up” feature on these preferred stocks. SMC currently pays 8 percent per annum to holders of those preferred stocks.

“The issuance of a new set or series of preferred perpetual preferred shares would be advisable to finance the redemption of the series 1 shares as it would enable SMC to potentially reduce cost of capital,” said Jose Mari Lacson of Campos Lanuza & Co.